OREGON STEEL MILLS v. Coopers & Lybrand

Decision Date23 January 2004
Citation83 P.3d 322,336 Or. 329
PartiesOREGON STEEL MILLS, INC., a Delaware corporation, Respondent on Review, v. COOPERS & LYBRAND, LLP, a Delaware limited liability partnership, Petitioner on Review.
CourtOregon Supreme Court

Michael L. Rugen, of Heller Ehrman White & McAuliffe, LLP, San Francisco, California, argued the cause and filed the brief for petitioner on review. With him on the brief were Natalie L. Hocken, Evan L. Schwab, and Rita V. Latsinova.

Lynn R. Nakamoto, of Markowitz Herbold Glade & Mehlhaf, P.C., Portland, argued the cause and filed the brief for respondent on review. With her on the brief was Peter H. Glade.

David F. Rees, of Stoll Stoll Berne Lokting & Schlachter, P.C., Portland, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Association. With him on the brief was Gary M. Berne.

Before CARSON, Chief Justice, and GILLETTE, DURHAM, RIGGS, De MUNIZ, and BALMER, Justices.1


This case requires us to consider once again difficult issues of causation and foreseeability in tort law. We are asked to decide whether defendant, an accounting firm, may be held liable for damages suffered by plaintiff, its client, due to changes in the market price of plaintiff's stock that defendant's negligent conduct did not cause. The trial court granted defendant's motion for summary judgment, and the Court of Appeals reversed. Oregon Steel Mills, Inc. v. Coopers Lybrand, LLP, 176 Or.App. 317, 31 P.3d 1092 (2001). We allowed review and, for the reasons that follow, reverse the decision of the Court of Appeals and affirm the judgment of the trial court.


We take the following facts from the summary judgment record, viewing the facts and all reasonable inferences that may be drawn from them in the light most favorable to plaintiff, as the nonmoving party. Jones v. General Motors Corp., 325 Or. 404, 408, 939 P.2d 608 (1997). Plaintiff Oregon Steel Mills, Inc., a company whose stock is traded on the New York Stock Exchange, retained defendant Coopers & Lybrand, LLP, for many years to provide accounting and auditing services. In 1994, plaintiff entered into a transaction that involved the sale of stock in one of plaintiff's subsidiaries. Defendant advised plaintiff that the transaction should be reported as a $12.3 million gain on plaintiff's financial statements and reports. Pursuant to that advice, plaintiff reported the transaction as a gain and, when defendant audited plaintiff's 1994 financial statements in early 1995, defendant gave its opinion that plaintiff's consolidated financial statements fairly represented plaintiff's financial position in accordance with generally accepted accounting principles. Plaintiff alleges in its complaint, and for purposes of its summary judgment motion defendant does not dispute, that defendant's accounting advice regarding the 1994 transaction was incorrect and that defendant gave that advice negligently.

During late 1995 and early 1996, plaintiff was planning to make a public offering of its stock and debt. Defendant knew of plaintiff's plans and had known, since at least 1994, that plaintiff would be selling stock and debt at some time in the future. Plaintiff anticipated that it would file the necessary documents with the Securities and Exchange Commission (SEC) on February 27, 1996, and that, barring unforeseen problems in the SEC approval process, the securities would be priced and sold on or about May 2, 1996. Defendant provided accounting advice to plaintiff in connection with the planned offering, and the documents that plaintiff filed with the SEC included the 1994 financial statements that defendant had audited.

Shortly before the initial SEC filing, defendant advised plaintiff that the 1994 transaction might have been reported incorrectly and that defendant would not approve the audit of plaintiff's 1995 financial statements or allow use of the 1994 audit unless the SEC approved the accounting treatment of the 1994 transaction. Subsequently, the SEC concluded that the accounting treatment for the 1994 transaction was incorrect and required plaintiff to restate its 1994 financial statements. Because of the time required to restate the 1994 financial statements and change other documents related to the planned offering, plaintiff was unable to make its initial filing with the SEC until April 8, 1996, and the public offering did not occur until June 13, 1996. On that date, plaintiff sold $80 million of newly issued stock and $235 million of debt. Although the price of plaintiff's stock was $13.50 on February 22, 1996, when defendant discovered the accounting error, and, coincidentally, also was $13.50 when plaintiff issued the stock on June 13, 1996, the stock price had risen and fallen between those dates. On May 2, 1996, the date that plaintiff alleges that it would have issued the stock but for defendant's negligence, plaintiff's stock sold for $16 per share.


Plaintiff brought this action in 1997, claiming that defendant's negligent conduct caused the delay that resulted in the stock being offered at $13.50 per share, rather than at $16 per share.2 Plaintiff therefore seeks as damages from defendant the difference between what plaintiff actually received for its stock and debt and what it alleges that it would have received if the securities offering had occurred on May 2, 1996, an amount plaintiff asserts to be approximately $35 million.3

As noted above, defendant moved for summary judgment. Defendant argued that, even if its negligent conduct had caused the delay in plaintiff's offering, defendant could not be liable for any "loss" resulting from plaintiff's stock being sold at $13.50 per share rather than at $16 per share because that "loss" was due to market factors unrelated to defendant's negligent conduct. The material facts underlying defendant's summary judgment motion are undisputed. Both parties agree on the historical facts summarized above and, in particular, that, but for defendant's negligent conduct, plaintiff would have sold its securities at an earlier date and at more favorable prices. It also is undisputed that the increase in the market price of plaintiff's stock in late April 1996 and its decrease in early June 1996 were unrelated to defendant's conduct and instead resulted from market forces affecting all steel stocks.

Based on those facts, defendant argued in the trial court that, as a matter of law, its negligent conduct was not the legal cause of plaintiff's "loss." Defendant relied on cases holding that a plaintiff cannot recover losses resulting from market fluctuations unless the defendant's misconduct caused the change in the market price. That concept, sometimes labeled "loss causation," requires that a plaintiff prove not only that its loss would not have occurred "but for" a defendant's negligent conduct, but also that defendant's negligence itself had some impact on the market price. See Movitz v. First Nat'l Bank, 148 F.3d 760 (7th Cir.1998), cert. den., 525 U.S. 1094, 119 S.Ct. 852, 142 L.Ed.2d 705 (1999) (where real estate investor purchased building in reliance on bank's negligent evaluation of building, investor could not recover from bank for damages attributable to collapse of real estate market because bank's conduct did not cause market collapse).

Defendant also argued that its liability was limited to the reasonably foreseeable consequences of its actions, citing Buchler v. Oregon Corrections Div., 316 Or. 499, 853 P.2d 798 (1993). Defendant asserted that the June 1996 decline in steel company stock prices, including plaintiff's stock price, which resulted in plaintiff raising less money from its securities offering than it would have raised absent the decline, was not a "reasonably foreseeable" consequence of defendant's accounting errors in 1994.4 Defendant distinguished cases in which courts have held defendants liable for losses due to market fluctuations, arguing that those cases involved situations in which the defendant had a specific legal duty to maximize a plaintiff's stock market return.5 In this case, defendant argued, its role as plaintiff's accountant involved no such duty.

In response, plaintiff argued that it was not required to show that defendant's negligent conduct "actually caused the market downturn." Plaintiff had a "professional relationship" with defendant and, plaintiff asserted, if the other elements of a negligence claim could be proved, then "causation" was a jury question that would turn on whether defendant's conduct was a "substantial factor" in producing the damage to plaintiff. Because this was a professional malpractice case, plaintiff argued, the issue was not whether plaintiff's damage was the foreseeable result of defendant's negligent conduct, but whether defendant's breach of its duty to plaintiff caused plaintiff's damage. Plaintiff also argued that, even if the appropriate analysis was whether a loss due to market fluctuations was "foreseeable," such a loss clearly was "foreseeable" because it is common knowledge that stock prices fluctuate.

The trial court agreed with defendant that plaintiff could not recover for losses based on the decline in the market price of plaintiff's stock because that decline was unrelated to defendant's negligent acts. In its letter opinion, the trial court stated:

"Every public stock issue involves the inherent risk of market fluctuations affecting the securities price at the time of issue. Plaintiff's theory would shift the risk of that fluctuation to the professionals assisting in the offering wherever negligence of the professional caused a delay in the sale, even though market factors wholly unrelated to the professional negligence were the sole cause of the drop in the issuing price. At the same time, the benefit of any market increase occurring during the delay would inure to the

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